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33 Cards in this Set
- Front
- Back
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On the balance sheet, marketable securities classified as trading or available-for-sale are valued..
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at fair value
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On the balance sheet, marketable securities classified as held-to-maturity are value...
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at amortized cost
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How are unrealized G/L on trading securities recognized?
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unrealized G/L on trading securities are recognized on the income statement
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How are unrealized G/L on available-for-sale securities recognized?
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unrealized G/L on available-for-sale securities are reporting in OCI.
Note: Under IFRS, foreign exchange G/L for AFS debt securities are reported on I/S |
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List three conditions when losses on marketable securities classified as available-for-sale are recognized in income.
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- sale of the security
- transfer of the security to trading classification - other than temporary decline of individual security below cost (impairment) |
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When a marketable equity security is transferred from trading to AFS, or vice versa, at what cost is it transferred?
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- transferred at FV, which then becomes new basis
- for a security transferred into the trading category, the difference is treated as a realized G/L and is recognized on the I/S - for a security transferred from the trading category, the unrealized holding G/L will already have been recognized in earnings Note: transfers to and from the trading category should be rare |
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How are G/L on financial instruments that hedge trading securities reported?
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reported in earnings, consistent with reporting unrealized G/L on trading securities
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How are G/L on financial instruments that hedge AFS securities reported?
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reported in earnings together with the offsetting G/L on the AFS securities attributable to the hedged risk
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What disclosures should be made for AFS and HTM securities?
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- aggregate FV
- gross unrealized holding G/L - amortized cost basis by type - information about the contractual maturity of debt securities |
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State the criteria to consolidate subsidiaries
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- consolidate when the parent is able to control the subsidiary. Usually this is indicated by greater than 50% ownership of the voting stock of the subsidiary
- do not consolidate when control is not with the owners (as in bankruptcy of subsidiary) |
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Identify the three levels of control and the appropriate accounting method for each.
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No significant influence:
- cost method; trading or AFS securities, at FV Significant influence but 50% or less ownership: - equity method Control: - cost or equity method (internal accounting) - consolidated financial statements (external reporting) |
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How is the year-end "investment in investee" reported on the B/S calculated under the equity method?
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Beginning investment
+ Investor's share of earnings - Investor's share of dividends - Amortization of FV differences = Ending Investment |
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How is an investor's equity method investment reported on the income statement?
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Investor's share of earnings
- Amortization of FV differences = Equity in earnings/investee income |
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How are joint ventures accounted for under IFRS and GAAP?
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Joint ventures are accounted for using the equity method under both GAAP and IFRS
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In a step-by-step acquisition, what is the accounting treatment when significant influence is acquired?
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- going from the cost method to the equity method is handled like a change in accounting principle - retroactively
- go back retroactively with the equity method but not with the new ownership % - prior period financial statements are restated |
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When are consolidated financial statements prepared?
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when the parent company has control over the subsidiary company (more than 50% of voting stock is owned directly or indirectly and no bankruptcy or reorganization)
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In Acquisition Accounting, state the consolidating workpaper elimination entry (CARINBIG)
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-Common stock - sub
-APIC - sub -R/E - sub ---- Investment in sub ---- Noncontrolling interest -B/S adjustments to FV -Identifiable intangibles to FV -Goodwill (or credit Gain) |
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How are expenses relating to the combination treated under the acquisition method?
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- direct out-of-pocket costs are expensed
- stock-related costs are a reduction in value of the stock issued (debit to APIC) - indirect costs are expensed - bond issue costs are capitalized and amortized |
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In an acquisition, how are acquired identifiable intangible assets amortized?
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- finite useful life: amortized to residual value over expected useful life
- indefinite useful life: do not amortize |
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How is goodwill calculated under the GAAP acquisition method?
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- goodwill is the excess of the FV of the sub over the FV of the sub's net assets, including intangibles at FV
- Goodwill = FV of sub - FV of sub's net assets - goodwill recorded in a business combination is not amortized. The entire investment is subject to the impairment test |
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How is goodwill calculated under the IFRS acquisition method?
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- goodwill is recognized under the full goodwill method (same as GAAP) or the partial goodwill method
- under the partial goodwill method, goodwill is the excess of the acquisition cost over the FV of the sub's net assets acquired - Partial goodwill = Acq. cost - FV of sub's net assets acquired |
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How is noncontrolling interest (B/S) calculated under GAAP?
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NCI = FV of sub x NCI%
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How is noncontrolling interest (B/S) calculated under IFRS?
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Full goodwill: NCI = FV of sub x NCI%
Partial goodwill: FV of sub's net identifiable assets x NCI% |
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How is noncontrolling interest on the income statement calculated?
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Sub net income
x Noncontrolling income % = NCI in net income |
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In a business combination, what is the treatment of an acquisition in which the acquisition cost is less than the FV of 100% of the net assets acquired?
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acquisition cost is allocated to the FV of 100% of the B/S accounts and the FV of the identifiable intangible assets. This creates a negative balance in the acquisition account, which is recorded as a gain.
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Name several pro forma workpaper elimination entries when producing consolidated F/S
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Eliminate:
- the effects of intercompany dividends - parent's investment in sub account - entire stockholder's equity section of the sub - effects of the G/L and adjust for the excess depr. on the sale of PP&E b/w affiliates - all intercompany sales and purchased - all other inter company B/S and I/S accounts - intercompany profit in COGS, and in beg. and ending inventories relating to an intercompany sale of merch b/w affiliates Adjust: - recognize NIC - adjust the B/S of the sub to FV - establish goodwill |
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State the workpaper elimination entry for intercompany inventory transactions
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-Retained earnings (intercompany profit in beg. inventory)
-Intercompany sales ----Intercompany COGS ----COGS (intercompany profit in goods sold) ----Ending inventory (intercompany profit in ending inventory) |
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State the workpaper elimination entry for intercompany bond transactions
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-Bonds payable
-Premium (or credit discount) ----Investment in affiliates bonds ----Gain on extinguish. of bonds (or debit loss) |
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State the workpaper elimination entry for intercompany land transactions
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-Intercompany gain on sale of land
----Land |
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State the workpaper elimination entries for intercompany depreciable assets transactions
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Entry 1: eliminate intercompany gain and adjust asset and A/D to original amounts
-Intercompany gain on sale ----Machinery ----A/D Entry 2: Eliminate excess depr -A/D ----Depr. expense |
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When are combined F/S prepared?
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- companies are under common control
- companies are under common management - unconsolidated subs are combined |
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When preparing combined F/S, identify the requirements
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- intercompany transactions and balances among these companies are eliminated
- noncontrolling interests treated like consolidated F/S - capital stock and R/E are added across, not eliminated - I/S are added across |
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Describe push down accounting
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Reports assets and liabilities at FV in separate F/S of subsidiary. In effect, consolidation adj are "pushed down" into the records
- assets and liabilities are adj to fair market value at date of acquisition - R/E of the sub are transferred to paid-in capital - NI of each sub included depr, amort, and interest expense based on FV rather than historical cost - the SEC requires push down accounting for each "substantially wholly owned subsidiary" |
